Contracts Outline 1

Contracts Outline 1 II. The Agreement Process A. Intention to be Legally Bound 1. Objective Theory i) A party’s intent is deemed to be what a reasonable person in the position of the other party would think that the first party’s objective manifestation of intent meant. (Lucy v. Zehmer) ii) Offers that are an obvious joke and that could not be considered by an objective reasonable person as a true offer are not enforceable. (Leonard v. Pepsi Co.) 2. Interpreting Statements to Determine Legal Consequences i) A doctor’s therapeutic reassurance that his patient will be alright, not to worry, must not be converted into a binding promise by the disappointed or quarrelsome. (Gault v. Sideman) Business Transactions  When the transaction is one which would normally be considered a “business” transaction, it will be presumed that the parties intended that the agreement be legally enforceable.  An exception to this is when both parties explicitly manifest their understanding that the arrangement is not to be legally binding. Domestic and Social Situations  Where an agreement arises in a social or domestic situation the presumption is that legal relations were not intended  Generally, agreements between family members are arrangements in which there are mutual promises but that they were never intended to be attended by legal consequences. (Balfour v. Balfour)  Where an agreement is made between family members not living together amicably, the agreement will usually be presumed to have been intended to be legally enforceable  If the parties specifically agree that the contract be enforceable then it will be. 3. Express Statements Concerning Legal Consequences i) All courts agree that the test is whether the parties intended to be bound. The most important indication of the parties intent is the terms of the letter agreement itself ii) The agreement to negotiate does not contain the terms of the final agreement. Otherwise, it would be the final Agreement. Acting in self interest is not bad faith. Acting in bad faith is if you do something with the purpose of getting the other party to back out. (Venture Associations Corp. v. Zenith Data Systems) 4. Contemplation of Final Writing i) If two parties agree (either orally or in a brief writing) on all points, but decide that they will subsequently put their agreement into a more formal written document later, the preliminary agreement may or may not be binding. In general, the parties intention controls. If they intend to be bound right away then they will be even though they expressly provide for a later formal document to be signed. What if there is no manifested intent? Most courts have held that a contract exists as soon as the mutual assent is reached even if no formal document is ever drawn up. ii) Parties can bind themselves orally or by informal letters or telegrams if they like. They can maintain complete immunity from all obligation even though they have expressed agreement orally or informally. The matter is merely one of expressed intention. 5. Agreement to Agree - Missing Terms i) The requirement of mutual assent does not require the parties to agree on all the terms, only the major or essential terms. If they have left certain terms out the court may conclude that one parties understanding rules, or may supply the missing terms. The parties must only intend to have a contract. (Paloukos v. Intermountain Chevrolet Co.) B. Offer and Acceptance A contract includes not only what the parties said, but also what is necessarily to be implied from what they said. (Southworth v. Oliver) 1. Preliminary Negotiations Distinguished from Offers i) A party desiring to contract may make a statement which is not an offer but rather a solicitation of bids. Such statements cannot be “accepted” but instead merely serve as a basis for preliminary negotiations. ii) General indicia that help to distinguish an offer from a preliminary proposal: a. The words used in communication b. Omission of several significant terms – if a communication omits several significant terms it is less likely to be an offer. The comprehensiveness and specificity of the terms in the communication are an important clue to its intent. c. Not specifically directed to a particular person – it could be an offer, but it is more likely that it should not reasonably be seen as such. d. The relationship of the parties – any previous dealings between them, and any prior communications in this transaction may cast light on how the recipient reasonably should have understood the communication. e. Common practices and trade usages iii) A contract includes not only what the parties said, but also what is necessarily to be implied from what they said. (Southworth v. Oliver) iv) General expressions of willingness to enter into a bargain upon stated terms and yet the natural construction of the words and conduct of the parties is rather that they are inviting offers or suggesting the terms of a possible future bargain than making positive offers. (Rhen Marshall Inc. v. Pruolator Filter Division) Price Quotations distinguished from Offers Factors to consider: 1. Quantity – will only be an offer if quantity is clear 2. Addressee – if the quote is not addressed to a particular person, but is merely a part of a general list, or is sent out pursuant to a large mailing, it is unlikely to constitute an offer 3. Use of term “quote” or “offer” 4. Need for further expression of assent – if the seller reserves the right of power to consummate the deal 5. Reluctance to find Contract – if its close then there will be no offer Advertisements as Offers  Most advertisements appearing in the mass media are not offers because they do not contain sufficient words of commitment to sell. Rest 2d. section 26, comment b.  But if the advertisement contains words expressing the advertiser’s commitment or promise to sell a particular number of units, or sell the items in a particular manner, there may be an offer. (Lefkowitz v. Minneapolis Surplus Store). The offer must be clear, definite, and explicit. Customs and Industries  The question of whether an offer was made seems to be one dependent on the intention of the parties, and being such, it depends on the facts and circumstances of the particular case  In the construction industry bids from subcontractors to general contractors are considered to be offers because of the nature of the business and because they are relied upon. (Maryland Supreme Corp. v. Blake Co.) 2. Identifying the Offeror and Offeree  Antonucci v. Stevens Dodge, Inc. 3. Duration of Offers  If there is no stated time limit on an offer, it will be deemed to stay open for a reasonable amount of time. Such circumstances as the nature of the contract, the relationship or situation of the parties and their course dealing, and usages of the particular business are all relevant. (Vaskie v. West American Insurance Co.) Stability of the market, nature of the transaction, the relationship of the parties; any course of dealing, custom, or trade usage; the means of communication used.  An offer by mail becomes an offer when it is received. (Caldwell v. Cline) B. Termination Of Power Of Acceptance 1. Rejection  If the offeree rejects the offer, this will terminate the power of acceptance (Chaplin v. Consolidated Edison Co. of New York) 2. Revocations, Acceptances and the “Mailbox” Rule  An offer may be revoked at any time before its acceptance is communicated to the proposer, but not afterwards. Even if a definite time in which acceptance may be made is named in a proposal, the proposer may revoke his proposal within that period unless it was given for consideration. (Farley v. Champs)  Revocation effective upon when it is received.  Direct revocation – the offeree must receive notice of revocation that clearly indicates on a reasonable interpretation that the offeror is no longer willing to enter the contract. Receipt requires that notice becomes available to the offeree so that if acting reasonably, the offeree would be aware of it contents.  The Acceptance of an offer is binding from the moment an offeree deposits a properly addressed letter of acceptance in the mailbox, but only if there is express or implied authorization that the mail may be used. (Farley v. Champs) 3. Variations on the Mailbox Rule a) General rule: acceptances are valid upon dispatch and rejection upon receipt. b) Upon the sending of the letter the acceptance is binding for both parties. i) If it was e-mailed or faxed it is valid upon “send” 4. Indirect Revocation  Revocations are effective upon receipt and they do not have to be communicated directly. (Dickinson v. Dodds)  Indirect Revocation – if the offeror takes action clearly inconsistent with the continued intent to enter a contract, and the offeree obtains reliable information of this action. 5. Counter Offers  An acceptance that is equivocal or upon condition or with a limitation is a counteroffer and requires acceptance by the original offeror before a contractual relationship exists. However, an acceptance may be valid despite conditional language if the acceptance is clearly independent of the condition. (Ardente v. Horan)  Minor discrepancies are tolerated and the rule only applies where the response makes matariel change 6. Death or Incapacity  The death of an offeror revokes his offer or causes his offer to lapse. Therefore, after death, the formation of that apparent state of mind of the parties which is embodied in an expression of mutual consent is rendered impossible. The offeree does not have to be aware of the death for the offer to be revoked. (Beall v. Beall) D. Making Offers Irrevocable 2. Option Contracts  One way to make an offer irrevocable is for the offeror to grant the offeree an option to enter into the contract. This is then called an option contract. There must be some kind of consideration for the option contract to be formed. (Orlowski v. Moore)  Statutes are another form of irrevocable offers. Rule 68 states: At any time more than 10 days before trial begins, a party defending against a claim may serve upon the adverse party an offer to allow judgment to be taken against the defending party for the money or property or to the effect specified in the offer. Courts have consistently held that offers made pursuant to Rule 68 are irrevocable during the ten-day period for acceptance. 3. Irrevocability Through Reliance – Firm Offers  Part performance or detrimental reliance by the offeree may render the offer temporarily irrevocable. The reliance must be “substantial and definite” or justice will not compel enforcement. (Pavel Enterprises v. A.S. Johnson)  Firm Offer - If a merchant (person dealing professionally in the kind of goods in question) provides an offer to buy or sell it is irrevocable even if there is no consideration if it meets two conditions 1. It is signed in writing 2. It gives explicit assurance that the offer will be held open 3. Irrevocability Through Part Performance  If the offeror reasonably expected that the offeree would rely on the offer, and there was detrimental reliance, the offer may become irrevocable. If the reliance is not “substantial and definite” justice will not compel enforcement. (Pavel Enterprises v. A. S. Johnson Co.) Firm Offers – (UCC section 2-205) An offer to buy or sell goods is irrevocable even though it is without consideration if it: 1. Is by a merchant (one dealing professionally in the kind of goods in question 2. Is signed in writing 3. Gives explicit assurance that the offer will be held open. If not time is stated, it will be held open for a reasonable time which cannot be longer than three months. CISG Firm Offers – Offers are irrevocable if it states the duration of the power of acceptance or if it was reasonable to rely on the offer as being irrevocable and the offeree has acted in reliance on the offer. 4. Irrevocability Through Part Performance – Section 45 of the Restatements A. Offer for Unilateral Contract i) If the offer makes it clear that acceptance can occur only through performance, and not through promise, the beginning of performance by the offeree creates an option contract. Once the offeree starts to perform the offer becomes temporarily irrevocable. Rest. 2d section 45(1). ii) The offeror’s duty under the contract is conditional on the offeree’s completing performance as specified in the offer. He must not only do what is specified in the offer, but he must do it within the time specified in the offer. . iii) It takes effect for unilateral contracts only when actual performance has started, not preliminary preparations. iv) An offer to enter into a unilateral contract can be withdrawn prior to the beginning of performance. B. Where performance or Promise is not specified. i) Acceptance occurs as soon as the offeree begins to perform and then becomes a bilateral contract. The offeree has accepted the contract and is bound to perform. Rest. 2d section 62 E. The Nature of Acceptance 1. Knowledge and Motivation i) Offers that are unknown to the offeree cannot be accepted. ii) As long as the outstanding offer was known to him, a person may accept an offer for a unilateral contract by rendering performance, even if he does so primarily for reasons unrelated to the offer. (Simmons v. United States). 2. The Requirement of Volition i) In a normal situation, notice of acceptance is required for a binding contract to be formed. However, when the offer is of a continuing nature, the better rule is that no prior notice of acceptance is necessary apart from the notice of the performance. Also when offers are made to very large amounts of people notice may not be required. (Carill v. Carbolic Smoke Ball Co.) F. Manner of Acceptance 1. The Modern Analysis i) An order or other offer to buy goods for prompt or current shipment shall be construed as inviting acceptance either by a prompt promise to ship or by the prompt or current shipment of conforming or non-conforming goods, but such a shipment of nonconforming goods does not constitute an acceptance if the seller seasonably notifies the buyer that the shipment is offered only as an accommodation to the buyer. (Corinthian Pharmaceutical Systems v. Lederle Laboratories) UCC 2206 (1)(b) ii) Accommodation is a counteroffer that the buyer can accept or can reject. iii) If an offeror does not solicit a manner in which to accept, it can be accepted in any reasonable manner. The offeree can accept by promise, or performance or by merely accepting the benefits of the contract. (Arduini v. Board of Education) 2. Silence as Acceptance i) Silence or inaction may constitute acceptance of an offer to contract, where a party is under a duty to speak or to reject the offer. Such a duty may arise when 1. The offeree silently takes the offered benefits, and 2. Where the offeror has stated or given the offeree reason to understand that assent may be manifested by silence or inaction, and the offeree in remaining silent and inactive intends to accept the offer. 3. If prior dealings between the parties or other circumstances make it reasonable for the offeror to expect the offeree to give notice of rejection. (Vogt v. Madden) (Rest. 2d section 69) ii) The offeror cannot impose a duty on the offeree to take some affirmative step to reject the offer, making failure to act an acceptance. 3. The Notice Requirement i) Where the beginning of a requested performance is a reasonable mode of acceptance an offeror who is not notified of acceptance within a reasonable time may treat the offer as having lapsed. What is a reasonable time for taking any action depends on the nature, purpose and circumstances of such action. (Petersen v. Thompson) ii) UCC 2-206(2) Although a unilateral contract becomes binding upon performance, the offeree must give notice unless the offeror has reason to know of performance. Result of no notice – discharges the contractual duty of the offeror. 4. The Concept of Warranty 5. Self Service Contracts i) A merchant’s act of stocking self-service displays with goods thereby makes an offer to the shopper to enter into a contract for their sale. A contract is merely terminated pursuant to the parties shopping agreement made upon the shopper entering the store. (Barker v. Allied Supermarket) Auctions – According to the UCC 2-328 the auctioneer, by opening the bidding on an item, does not make an offer. Instead he solicits offers (bids) from the audience. 1. With Reserve – means that even offer the start of bidding, the auctioneer may withdraw the goods from the sale. It is only when the auctioneer concludes the sale by letting the hammer fall that he is deemed to have “accepted” the last bid. 2. Without Reserve – The auctioneer is deemed to have made an irrevocable offer to sell the goods to the highest bidder. Once the bidding starts, the auctioneer cannot then withdraw the goods because the bids are too low. 3. Withdrawal of bids – A bidder may withdraw his bid any time prior to completion of sale. G. The Deviant Acceptance 1. Matching Acceptance and Other Acceptances i) At common law, the acceptance must exactly match the terms of the offer, “mirror image” rule. If the terms suggested by the offeree would not have been implied and are new terms, the offeree’s insistence upon such terms will constitute a qualified or conditional acceptance, which will be treated as a counteroffer. ii) Traditional contract law has permitted an offeree to make suggestions or request, which are added to but not conditional upon an otherwise clear manifestation of acceptance. The offeror may feel free to accept or reject such suggestions or requests. If the offeree’s response is equivocal (there is some reasonable doubt as to whether the offer was accepted) the offeror is not required to guess or draw inferences. 2. The Matching Acceptance Rule and Printed Forms i) If the inflexible mirror image rule is applied, then the last form that is sent between the parties prior to performance becomes the terms of the contract “Last Shot” 3. The Modification of the Matching Acceptance Rule i) Acceptances and Counteroffers – Itoh v. Jordan I) The Form stated that “express consent” was required, but with UCC 2207, performance becomes the express consent because the conduct of the parties establishes the contract. II) Rule: The mere presence of an additional term, such as a provision for arbitration, in one of the parties forms will not prevent the formation of a contract. However, if there is a proviso then the agreed upon terms become part of the contract and you use gap fillers for the rest. III) Proviso must be construed narrowly. The proviso under UCC 2207 constitutes a counter offer that can only be accepted through express assent and not performance. IV) The forms did not constitute a contract and so a contract was formed by performance. V) At common law the terms of the contract would have been the arbitration clause listed. VI) There is no UCC gap filler for arbitration so it drops out of the contract ii) Different v. Additional Terms I) Under UCC 2207 mirror image acceptance is not required, even if there are different or additional terms, if there is a definite and seasonable acceptance or written confirmation, there is acceptance unless, acceptance is expressly made conditional on the acceptance of the different or additional terms. There can still be a contract, but if it exists, it is based on the conduct of the two parties. II) If the contract is made through performance, then the terms that agree stay in and those that don’t drop out and gap fillers and standard implied terms from the UCC are included. iii) Northrup v. Litronic Industries I) P submitted requests for offers stating that any purchase would be through a purchase order whose terms would override any inconsistent terms in the offer. D sent an offer with a 90 day warranty and stated that the terms of the offer would override any terms proposed by the buyer. P’s rep. accepts over the phone to the limit of his authority and states that a purchase order will follow. (Purchase order claims an unlimited warranty). On month later there was a turn on letter from P and purchase order was sent latter. PO required the seller to send back and acknowledgement which it never did. Over a year later, 3 of the 4 boards were defective and P sent them back to D. D would not accept stating that the 90 day warranty had been exceeded. II) Issue: What happens if the Offeree’s response contains different terms rather than additional ones within the meaning of 2207(1)? III) How to interpret different terms? a. Majority view – Discrepant terms of the offer and acceptance drop out and are replaced with UCC gap fillers. b. Leading Minority view – Only the discrepant terms in the acceptance drop out. c. Minority (CA) – the different terms become proposals and the outcome depends on whether those terms are materially different. IV) The court here adopted the Majority view 4. Confirmations With Different or Additional Terms – Step Saver v. Wyse Technology. i) P purchased software from D and resold it – there were immediate problems with the goods. Neither the PO nor the invoice had any statements regarding a warranty but there was a box top license on each software package. It stated that the licensing agreement contains no warranty and that the terms of the box top are a final and complete expression of the contract. ii) D has three arguments: 1) the contract did not come into existence until P received the program and saw the box top terms. Too many material terms were left out of the phone conversation for that to be the contract. 2) The acceptance of the telephone offer was conditioned upon the terms of the box top which made it a counteroffer. 3) By P continuing to order and accept the product they assented to the disclaimer. iii) The court held that the contract was sufficiently definite without the terms provided by the box-top license. The integration clause and the “consent by opening” language is not sufficient to render it conditional. The box-top was just a request for additional terms. iv) Under 2207(2)(b) the disclaimer did not become part of the agreement because it materially altered the contract. 5. CISG and the Battle of the Forms (Records). i) CISG Article 19 – An acceptance that materially alters the terms is a counter offer. A reply that contains additional or different terms which do not materially alter the terms is an acceptance unless the offeror, without undue delay, objects orally to the discrepancy or dispatches a notice to that effect. H. Consideration 1. The Elements of Consideration (Restatement 71) i) There must be a legal value (detriment to the promisee or benefit to promisor. The two basic types are I) Promisee does something he’s not obligated to do (e.g. paint the promisor’s fence) II) Promisee refrains from doing something he is entitled to do. ii) There must be a bargained for exchange – the detriment must induce the promise, and the promise must induce the detriment. I) Nominal and Sham Consideration: Nominal ($1 was actually paid), Sham ($1 wasn’t ever paid). Normally the law does not concern itself with adequacy of consideration, so long as the consideration was truly bargained for. 2. General Notes i) A gratuitous promise given for nothing in return = there is no consideration and therefore, no contract. I) Cannot contract around a lack of consideration, it is an immutable rule. ii) An Illusory Promise: “I promise to give you my car unless I decide not to move to Australia in August.” The promisor has a completely unrestricted right to renege on his promise. iii) Purpose of consideration is to determine which contracts are enforceable. iv) Generally courts will not look into the adequacy of consideration supporting a contract v) Detriment may be an actual detriment or a legal detriment. vi) What is bargained for? I) Promise to perform II) Performance III) Forbearance IV) Promise to forbear vii) How to find a bargained for exchange I) Outward manifestation of intent Look for reciprocal inducements a. Was performance induced by promise b. Was the promise induced by performance. 3. The Legal Value Element – Adequacy or Sufficiency of Consideration i) Hammer v. Sidway I) D told P that if he refrained from smoking, drinking, and gambling until his 21st birthday, D would give P $5,000. II) The detriment was induced by the benefit so there was a bargained for exchange. ii) Harris v. Time I) Kid gets Time junk mail which promised a new watch if he opened the mail – when the envelope was opened, there was additional action required to get the watch. II) Offer: outside of the envelope requesting performance. Acceptance: Opening of the envelope, performance. Consideration analysis: There was an inducement to open the envelope and the detriment was induced by the promised benefit. III) The court used its gatekeeper function to find that the detriment was not sufficient to support consideration – the case was trivial and junk litigation. 4. Exceptions to Refusals to Inquire Into Adequacy i) McKinnon v. Benedict (Inadequacy in Equity) I) Lawyer got poor guy to sign a contract for a loan – poor guy was unable to use the land as needed by the terms of the contract. II) The court held that there was a contract supported by consideration but that there may not be an equitable remedy available. III) As to contract formation, consideration either exists or it doesn’t but as to remedies, courts may look to the adequacy of the consideration when determining what remedies are available. ii) Schnell v. Nell (The money Exception) I) Dead wife promised money that she did not have in her will. Husband decided to honor the will if the parties gave 1 cent in consideration and took payments over a period of three years. II) Offer and Acceptance, ok. III) Consideration – the agreement stated that the consideration for the $200 was the 1 cent, wife’s love and affection, was wife’s desire for heirs to have $ IV) Problems a. Love and affection of wife were not bargained for – past performance. II) b. The wife’s desire for the money to go to the heirs was moral consideration and will not support promise. c. The 1 cent was merely token – when looking at whether there was reciprocal inducements (were the parties really bargaining for the 1 cent – no is was just a token) 5. Nominal (Formal) Consideration – Bargained-for-Exchange i) If there is simply an attempt to formalize arrangement with $1, it is not consideration – only a pretense, a gratuitous gift is not consideration. ii) Thomas v. Thomas I) Guy tells the executors of his estate that he wants his wife to get more than his will states including the staying in the family home – executors do this in memory, but charge the woman 1 pound a year and upkeep. II) Motives behind promises do not matter so long as there is consideration there is a contract. III) Restatement of Contracts 81 a. The fact that what is bargained for does not itself induce the making of a promise does not prevent it from being consideration for the promise 6. Promise of Permanent Employment i) Fisher v. Jackson I) Baker quits his job for a job at a newspaper – the job was a permanent one (Baker interpreted it as meaning for life). Baker was fired 5 years later. II) Offer was for a full time permanent position – Baker accepted when he took the job. III) Baker contends that there was consideration for lifelong employment contract. IV) Court held that there was consideration for a terminable at will employment, but not lifelong employment because there must be consideration beyond the normal consideration found in employment context. a. There was no consideration for the baker leaving his prior employment. Defendant did not bargain for the Plaintiff to leave the bakery, P’s leaving the bakery was incidental, the only bargained for the P to work for them V) It must be bargained for! VI) The mere giving up of a job by one who decides to accept a contract for alleged life employment is but an incident necessary on his part to place himself in a position to accept and perform the contract; it is not consideration for a contract of life employment. 7. The Effect of Recitals i) Lewis v. Fletcher I) P states that he entered into a contract for the sale of 360 acres and an option contract for 40 acres with $20 consideration to keep the option open (Option was for six years). II) P claims that the two agreements were integrated and dependent – D claims that the two agreements were separate and that he never received the $20 consideration. III) Court found that the contracts were separate and distinct because they were signed four days apart and neither one mentions the other. IV) The option contract must stand alone and therefore fails for a lack of consideration because the $20 consideration was never paid. V) Issue: whether a written and signed option contract, which contains a false recital of payment of consideration and acknowledgement of its receipt, is valid and enforceable. VI) Majority of jurisdictions hold that a recitation of consideration which has not been paid is not sufficient consideration. VII) A Minority of Jurisdictions will hold that a recital of consideration is sufficient because 1) the party is estopped from contradicting their own writing, 2) because the recital consideration is an implied promise to perform. This is the Restatement’s position. VIII) The court follows the majority. 8. Absence of Detriment – “Mutuality of Obligation” – “Illusory Promises” – Requirements Contracts. i) Pick Kwik Food Stores v. Tenser I) D purchased gas station from third party who had a purchase agreement with another party who sold their interest to the P. P is claiming that D is in breach for not honoring the contract between the original parties. II) The court held that the original contract was a one sided at will contract (P was in complete control) therefore, there was no mutuality of agreement. III) Because the D had no express or implied commitment to do anything he could remove the equipment at any time, there is no mutuality of agreement, there is no contract so any business is at will on the part of both sides, the termination by the D was ok and the D is not liable for future losses. IV) If one party has the unrestricted right to terminate the contract but the other party doesn’t, that party makes no promise at all and there is not sufficient consideration for the promise of the other. ii) Notes I) Empty promises – a promise to perform an act unless the promisor changes his mind promises nothing. II) Notice can be a Detrimental Alternative. III) The Doctrine of Mutuality of Obligation – either both parties are bound or neither party is bound. iii) Hay v. Fortier I) D owed $ to P. D’s attorney wrote letter stating that D would make $100 payment and pay off in April if the P will not go forward with court case. II) There is an absence of consideration because the D already had an obligation to pay the entire amount. III) However, although the P was not bound by the original promise to forbear, because he did forbear, the D was unjustly enriched and so the D must perform their part of the agreement – the D is estopped from refusing to perform. 9. Illusory Promises i) Scott v. Moragues Lumber Co. I) There was an agreement that if the D bought the boat that he would bring it to the P and P would charter. D bought the boat but chartered it to a third party II) Illusory Promise? – If D purchases the boat. a. Whether or not D purchased the boat was totally under the control of the D. The D controls the stipulated condition. III) The reason it is not illusory is because the D fulfilled the stipulated condition – there was consideration at that point because the promise was no longer illusory. IV) When analyzing, ask was D in total control of the stipulated condition ii) McMichael v. Price I) Buyer agreed to buy all of the sand he needed from the seller. Requirements Contract. II) Issue: the definiteness of the contract. Quantity is lacking. Courts have accepted this as part of the requirements contract, it is ok. III) There is a good faith requirement in all UCC. The company cannot purposely go out of business to get out of the contract. IV) UCC 2-306 10. Requirement and Output Contracts – enforceable as long as the parties act in good faith and the quantities involved are reasonably foreseeable at the time the contract is entered into. i) Empire Gas Corp. v. American Bakeries Co. I) P entered an agreement with D to convert a fleet of trucks from gas to propane. D would convert a number of vehicles monthly (to 3000 total) – D would purchase all required propane converters from the P. II) D’s requirements went to Zero. III) Requirements can go to Zero if there is good faith. a. Good faith – stop purchasing because of obsolescence of what was previously purchased or there could be drastic changes in requirements due to technology or market changes. b. Bad faith – don’t want to comply (better price elsewhere, etc.) IV) Here the D was acting in bad faith a. There was no business reason not to fulfill b. D never gave any reason for its decision – so there was no defense – court had to rely on the P’s evidence. V) Usually where there is one party in control of the condition precedent, it is an illusory promise, but here due to an obligation to purchase in good faith, it is not illusory. There is consideration, UCC 2306. 11. Exclusive Dealing – “Best Efforts” i) Wood v. Lady Duff-Gordon I) P would get to use D’s name and endorsement on products. D would get half of the profits. II) Does this case mean that we will imply good faith in every case? There is not an implied promise of best efforts and good faith in every contract (because there can be good faith but an illusory promise). It depends upon the terms of the contract – it can be implied due to custom and past dealings. ii) Famous Brands v. David Sherman Corp. 12. Voidable Promises and Consideration – Capacity to Contract i) A promise made by a person who is not over 18 or suffering from mental illness is protected with a power of avoidance. The contract is voidable by the person lacking capacity. The promisor is absolutely bound but the incapacitated party may disaffirm his promise. 13. The Pre-Existing Duty Rule i) Slattery v. Wells Fargo Armored Service I) P worked for the police (polygraph examiner) and interrogated the perpetrator. Before the second interrogation the perpetrator confessed to the crimes. D had posted a reward for info leading to a conviction and for the return of the goods. II) District court held that there was no contract because the P did not accept the offer because he did not fully perform (gave info but no recovery of goods). III) Appellate court held that there was no contract due to the pre-existing duty of the P. a. P had a pre-existing duty to give all information to his employer that might aid the state attorney or the Dept of Public Safety. IV) P was already bound to give the info, so when he tried to accept the offer he was doing no more than he was required to do. P was already paid for acting in that capacity ii) Betterton v. First Interstate Bank of Arizona I) P couldn’t pay his bills, D contacted the repo people. P went to the bank and made an arrangement for garnishment and D had the truck repoed anyway. II) P had a pre-existing duty to pay so making a payment was not consideration for a new contract. However, the rule of pre-existing duty is not applicable if the promise undertakes any obligation not required by the pre-existing duty, even if the new obligation is almost the same as the pre-existing duty. III) P arranged for his broker to make payments directly to D which he was not under a pre-existing duty to do. Therefore, it satisfied the consideration element. IV) Rule: If a new contract modifies a pre-existing contract in a substantial way, the pre-existing duty rule does not apply because there is a new benefit/detriment. 14. Modifications of the Pre-Existing Duty Rule i) Angel v. Murray I) Trashman agreed to 5 year contract to collect all trash in the city – 1967 and 1968, trashman requested an additional $10,000 per year due to the tremendous growth of the city. City approved, the contract was modified voluntarily. II) Issue: Was the contract modification due to an unexpected and unforeseen difficulty that arose during performance and therefore supported by sufficient consideration? III) Rule: In the event of an unexpected and unanticipated event during the course of the performance, a contract can be modified in good faith and the modifications are valid as long as 1. the parties agree voluntarily to it, 2. it had not been fully performed yet on either side, 3. the events are unanticipated by both parties, and 4. the modification is fair and equitable. ii) UCC section 2209 – permits modifications of contracts for the sale of goods without consideration. 15. Disputed Claims, Modifications, Accord and Satisfaction i) Ruble Forest Products v. Lancer Mobile Homes of Oregon I) D purchased 11 truckloads of lumber and D did not pay. P called demanding payment and D refused claiming that they were defective. II) There is a pre-existing duty to pay. D then demanded a compromise in the payment because of the low quality. P and D then came up with a new payment arrangement. III) The court applied the UCC: there is no consideration needed to be binding for modifications to the contract. In order for the modification of a contract to be valid it must be made in good faith. There was no bad faith in this case because the D offered evidence that the lumber was defective. IV) UCC good faith definitions – 1201(19) AND 1203, 2103 (Merchants). 16. The Invalid Claim – Dyer v. National By-products. i) P lost foot in a work related incident and returned to work and was then fired. P stated that he had agreed to forbear bringing litigation and the D agreed to employ him permanently. P states that the agreement was in good faith. ii) Claim is technically unfounded because of workman’s compensation regulations. iii) Issue: Whether good faith forbearance to litigate, which later proves to be invalid and unfounded is sufficient consideration to uphold a contract or settlement. iv) Rule: As long as both parties believe the case is valid, it doesn’t matter that the claim is not valid and will therefore qualify as consideration as long as it is a good faith belief and a reasonable belief. I. Past Consideration – Moral Obligation 1. The Material Benefit Doctrine – In Re Hatten’s Estate i) Dead Guy had repeatedly told woman that he would pay the woman who had taken care of him and done him many favors. Before he died he wrote a formal document giving her a some of money. The money was purportedly for the things in which she had given him in the past. ii) Rule: A receipt by the promisor of an actual benefit will support an executory promise and that a moral consideration may be sufficient to support an executory promise “where the promisor originally received from the promise something of value sufficient to arouse a moral, as distinguished from a legal, obligation. iii) Here services were rendered with the expectation of compensation. Policy, there was an expectation of payment, so we want to enforce that expectation. iv) Restatement 86 – A promise made in recognition of a benefit previously received by the promisor from the promise is binding to the extent necessary to prevent injustice. A promise is not binding under this: I) If the promise conferred the benefit as a gift or for other reasons the promisor had not been unjustly enriched; or II) To the extent that its value is disproportionate to the benefit. 2. Promises Uniformly Enforced Through Moral Obligation i) First Hawaiian Bank v. Zukerkorn I) Z got two loans (1965/1966) from bank and car loan in 1973. He paid off the car loan in 1975, Z applied for credit and bank told him that he owed them money on an old account and that getting credit was conditional on paying the old account off. Bank claims that Z made a payment of the $200 at the time of the agreement and subsequently paid $500. In 1978 the bank sued Z on the 2 notes and the balance of the card II) Rule: A new promise to pay a debt, whether then barred by the statute of limitations or not, binds the debtor for a new limitations period. It may be express or implied. If express, it may be conditional or unconditional, but if conditional, it is not effective until the condition is performed. It may be implied from an express acknowledgement of the debt or from part payment thereof. III) Rationale: the contract to pay the original debt was valid, so shouldn’t be prevented on a technicality. Rest. 82 3. Promises to Pay Debts Discharged in Bankruptcy i) If a debtor reaffirms a debt and files an affidavit by his attorney, the debtor is responsible for the debt. J. Promissory Estoppel (Takes the Place of Consideration) 1. The Elements of Promissory Estoppel Under Restatement 90 i) Someone Makes a Promise ii) Which he Should reasonably expect will lead to the promisee’s action or forbearance iii) The promisee does in fact justifiably rely on the promise to his detriment, and iv) Injustice can be avoided only by enforcing the promise. 2. The Absence of Bargained-for-Exchange Antecedents – Miles Homes Division v. First State Bank of Joplin i) Seller buying prefab homes, gave buyer a 2 nd mortgage. The buyer got the first mortgage from Joplin Bank for the land. Seller did not record the second mortgage, but sent a letter to the bank requesting notice from the bank if the buyer became delinquent. The bank signed a form stating that they would notify the seller and would provide the seller the opportunity to make payments prior to a foreclosure. The buyer didn’t complete the house and became delinquent but the bank didn’t notify the seller. The note was purchased from the bank by a third party and the seller never knew of the sale. They had relied on the bank to notify them. ii) The seller tried to say that there was consideration because they suffered a detriment by shipping out the materials to the buyer. However, the Bank did not bargain for the seller to ship out the materials. So there was no consideration. iii) Issue: Was there promissory estoppel/detrimental reliance? iv) Restatement 90: A promise which the promisor should reasonably expect to induce action or forbearance of a definite and substantial character on the part of the promisee and which does induce such action or forbearance is binding if injustice can be avoided only be enforcement of the promise. v) Equitable Estoppel – applies where a party makes a false representation to, or knowingly conceals material facts from, another party with the intention that the innocent party should act upon the false representation or concealment. 3. Early Applications of Promissory Estoppel – Hand Versus Traynor i) D attempted to repudiate promise of memorial scholarship donation after money had been set aside and memorial scholarship was set up (preliminary) ii) Issue: Whether the enforcement of charitable subscription can be squared with the doctrine of consideration as qualified by the doctrine of promissory estoppel? iii) A promise becomes binding if 1) the promisor intends, or reasonably expects, the promise to induce reliance, 2) a party actually relies on the promise, and 3) non-enforcement of the promise will cause detrimental injury or injustice. 4. The Expansive Application of Promissory Estoppel – i) Feinberg v. Pfeiffer Co. I) Old Lady was promised a pension from her job and then decides to retire. After 7 years the company stops paying her and claims that there was no consideration for the promise. II) Promissory Estoppel Analysis: a. The company reasonably foresaw that the old woman would rely on the promise b. The woman did in fact rely on the promise for 7 years, and the pension is what made her retire from her job while she was still in good health. c. There was no other way to remedy the injustice ii) Cohen v. Cowles Media Co. I) Newspapers published the name of a confidential source (dirt-digger for the republican party) who gave information about a democratic candidate. P gave this information on the condition that he remain anonymous. After the article came out he was fired from his job the next day. II) P contends that there was a breach of contract and fraudulent misrepresentation. D claimed that the information was too important to the public good. III) The court held that there was no contractual claim because the reporters could not bind the newspaper (weak argument). IV) Promissory Estoppel Analysis a. Is the promise clear and definite? Yes b. Did the promisor intend to induce reliance on the promise? Yes c. Did the promise induce action? Yes d. Must the promise be enforced to prevent injustice? Yes. V) Damages the jury was instructed: A party is entitled to recover for a breach of contract only those damages which: a) arise directly and naturally in the usual course of things from the breach itself; or b) are the consequences of special circumstances known to or reasonably supposed to have been contemplated by the parties when the contract was made. VI) The new version of the Restatement 90 eliminated the “definite and substantial” requirement, permits a relying third party to enforce the promise, and creates a flexible remedy standard, “may be limited as justice requires.” VII) Detrimental Reliance by Third Persons: if the promisor actually foresees, or has reason to foresee, action by a third person in reliance on the promise, it may be quite unjust to refuse to perform the promise. 5. Precontractual Reliance i) Pop’s Cones, Inc. v. Resorts International Hotel, Inc. I) P wanted to rent space to move her business to D’s location. P contacted D repeatedly. D told the P that the contract was 95 percent there and that P should give notice and pack up from her old location. P’s lease ended and she put everything into storage and continued to finalize new lease. D wrote letter withdrawing the offer, the deal fell through and P had to find another location. P was unable to reopen for business for quite some time. II) Four step analysis a. Was the promise clear and definite? Yes, D told P to pack up and give notice. b. Did the Promisor reasonably expect the promise to induce action? Yes. II. c. Was there actual reliance induced by the promise, and was it reasonable? Yes, P hired attorney, gave notice, packed up business. There was a definite detriment III) Promissory Estoppel can be used to make a contract, but can also be used in lieu of a contract to enforce promises IV) Damages: Do you award the amount relied upon (the reliance interest) or the amount promised (the expectation damages). a. Jurisdictions vary and award is determined by the facts but usually reliance interest 6. Flexible Remedy – Reliance or Expectation i) Goodman v. Dicker I) P agreed to sell D’s goods and entered into a dealer franchise. P presold 40 radios and D pulled out. The franchise agreement would have been terminable at will and would have imposed no duty upon the manufacturer to sell or appellees to buy any fixed number of radios. II) Four Step Analysis: a. Was the promise clear and definite? Yes, P would get 30-40 radios b. Did the D expect the promise to induce action? Yes. c. Did the P act in reliance of the promise? Yes, hired people and presold radios. d. Can injustice only be avoided by enforcement? Yes, reliance damages (hiring, etc./ what was done to prepare for the franchise) but no expectation damages (the profits). III) Damages in general a. If a substitute to consideration – expectation interest b. If used to remedy where no contract was made – reliance interest. The Statute of Frauds – Forbids the enforcement of certain kinds of contracts unless there is a writing or an applicable exception (evidentiary and Cautionary purposes). a. A writing will not be required when there is: i. Full performance by both sides ii. Seller conveys property to buyer and buyer pays all or part of the price and performs some act explainable only by the contracts existence. iii. Promissory Estoppel iv. Waiver (by not affirmatively pleading the statute of frauds as a defense). v. Admission in court b. Under the UCC 2201, there are other ways to satisfy the statute of Frauds: i. Part Performance – through receipt and acceptance of goods, partial payment, or full payment. But this only satisfies the SOL to the extent of the performance and not the rest. ii. Admission of contract’s existence by party to be charged in court through pleadings, testimony, or otherwise. iii. If the goods are specially manufactured and the seller has substantially begun manufacture or made commitments. Goods that are not suitable for sale to others in the ordinary course of the seller’s business c. Contracts for the Sale of Land i. Part Performance and Remedies – Cain v. Cross 1. Offer for the sale of land, $10,000 down payment paid, no written contract. But seller decided that he did not want to sell to him and sold to a third party for $50,000. C says that he partially performed and therefore the contract is not under the statue of frauds. 2. Rule: No action shall be brought to charge any person upon any contract for the sale of lands, unless the contract or a memorandum or note thereof is in writing and signed by the party to be charged. If not the contract is voidable but not void, which means that it may be enforced unless the defendant sets up the statute as a defense. 3. Part Performance in sales of land – In order to fall under the part performance exception you must: a. Pay the purchase price, either in part or in whole. b. Take possession c. Make improvements on the land in some way or change the property in some way in reliance on the oral contract. d. Contracts Not performable Within One Year From Formation – C.R. Klewin v. Flagship. i. F hired K under an oral contract to complete a construction project. It was estimated to take about 3 to 10 years to complete the project. There was a written contract for the first phase only. Two years after the oral contract, F became unsatisfied with K’s work and hired a new contractor to finish the job. ii. Critical Test: The contract must expressly state that it will last for over one year e. Contracts for the sale of Goods (UCC) – Azevedo v. Minister i. Basic Rule: Need writing if a contract for the sale of goods exceeds $500. Work through UCC 2201 (special merchant rules 2201(2) – exceptions 2201 (1) and (3). ii. The writing must have SIPS: Subject Matter, Identities, Promises, and Signatures. iii. A and M agreed to contract with each other for the purchase of hay by phone. They opened an escrow account in favor of M which A deposited sufficient funds to cover the cost of the hay he hauled from M’s ranch. M claims that they contracted for 1,500 tons of hay, but A says there was no quantity involved. M furnished A with periodic accountings. Then M only loaded two of four trucks sent by A because the funds in the escrow account were insufficient, A then refused to buy the rest of the hay from M. The confirming memoranda that M sent to A stated the amount of hay remaining in their contract which A did not challenge or reply to. iv. Confirming Memoranda – reason for encourages oral contracts and makes them binding through memoranda. v. Test – if the memoranda was between merchants and sent within a reasonable time, the memoranda satisfies subsection 1 unless it is rejected within 10 days. It must evidence a contract for the sale of goods; it must be signed by the party to be charged; and it must specify a quantity. vi. CISG – there is no staute of frauds requirement in the CISG. f. Estoppel and the Statute of Frauds i. Restatement of Contracts Approach – Alaska Democratic Party v. Rice. 1. P was offered a position and entered into an oral contract with D to work with the Democratic Party in Alaska for 2 years. P quit her job and turned down a job in reliance of this offer. Shortly after moving to Alaska P was fired. 2. Statute of Frauds – because the contract was for an express term of two years. Any express term of over one year is within the statute of frauds. 3. Promissory Estoppel application to the statute of frauds. Can promissory estoppel create enforceability not withstanding the statute of frauds? Yes. 4. Restatement section 109. 5. Key difference between 109 and 90: the specificity of injustice obligation. And 109 makes a contract enforceable, whereas 90 makes a contract. ii. UCC Statute of Frauds and Promissory Estoppel – Columbus Trade Exchange v. AMCA International Corp. 1. Issue: Can section 139 be grafted into UCC 2201? 2. In UCC 1103 – lists the common law provisions that are available under the UCC and it includes promissory estoppel. 3. UCC 2201 – states specific exceptions to the statute of frauds but promissory estoppel is not listed. 4. The court here concludes that promissory estoppel is applicable under the UCC. g. Admission That a contract was made III. i. Lewis v. Hughes 1. P selling house trailer (UCC and over $500 = SOF). There was a writing but it did not satisfy the SOF. In testimony D admitted that there was an agreement. 2. Rule: UCC 2201(3)(b) – involuntary admissions can be used to satisfy the SOF under 2201(3)(b) when the party denying the existence of the contract and relying on the statue takes the stand and, without admitting explicitly that a contract was made, testifies to facts which as a matter of law establish that a contract was formed. The Parol Evidence Rule a. The Basic Concept i. Policy – it prevents fraud, the inclusion of non-terms/negotiations, and is easier to substantiate a writing. ii. When parties to a contract embody the terms of their agreement in a writing, intending that writing to be the final expression of their agreement, the terms of the writing may not be contradicted by evidence of any prior agreement. iii. Problem with Parol Evidence Rule – makes it difficult to bring in something that really was left out of the contract but was agreed to by the parties. iv. Merger Clause – a clause that states the writing is a final expression of all terms agreed upon by the parties, and it is a complete and exclusive statement of those terms. Generally, the courts will consider the contract to be fully integrated if there is a clause like this b. The Application of the Rule i. Traudt v. Nebraska Public Power District 1. D purchased an easement across P’s land. P claims that they had orally agreed to pay more if any other land owners got more. The written agreement contained a merger clause. 2. The Oral agreement was made prior to the writing. 3. Tests: a. Nebraska Test: Looks only at the writing i. Completeness of the writing, is the writing completely integrated. ii. Evidence contradicting the terms of the writing. iii. Intent (conduct and language) of the parties and the surrounding circumstances. b. Restatement 240 the Natural omission Test c. Wigmore Test – Whether the writing was intended to cover a certain subject of negotiation, look at the conduct and the language of the parties and the surrounding circumstances. 4. The court held that the written agreement was intended to be the final integrated agreement. ii. Masterson v. Sine 1. D and R owned a ranch which they conveyed to M and L. When it was sold D put in an option contract where he could buy it back before a certain date. D went bankrupt. D’s trustee and R went to M and L to exercise the option. M and L refused stating that there was an agreement that the land was to remain in the family. 2. The Court applies the Natural Omission Test by Restatement 240. a. Proof of a collateral agreement is permitted if it is such an agreement as might naturally be made as a separate agreement by parties situated as were the parties to the written contract. 3. In this case the deed does not explicitly provide that it contains the complete agreement, and the deed is silent on the question of assignability. If collateral agreement was to contradict the written agreement it would not be allowed. 4. The court held that this agreement is one that might have naturally been made as a separate agreement. c. The UCC Parol Evidence Rule – Trade Usage, Prior Dealings i. Ralph’s Distributing Co. v. AMF, Inc. 1. P had a franchise agreement with multiple extensions. D’s product became unpopular and then decided to discontinue its agreement and sell only to Harleys and to get rid of the product through Harley dealerships. P claims breach of contract and says that there was an oral agreement that they had an exclusive distribution contract. 2. Here the contracts designating Ralph’s sales area are silent as to whether or not it was to be the exclusive distributor in that territory. Therefore, Ralph’s course of performance and usage of trade evidence does not contradict any explicit contractual term and was admissible to explain and supplement the meaning of the franchise agreement. 3. UCC Test a. Is this a final agreement or only final as to the terms contained? Certain inclusion test. b. Even if it is an integrated agreement, it can still be supplemented with course of dealing, course of performance, and trade usage. c. No contradicting evidence allowed d. If the agreement is not integrated then additional consistent terms are ok. ii. Columbia Nitrogen Corp. v. Royster Co. 1. C contracted to purchase an amount of phosphate. There was an escalation provision and a delivery schedule where if the price went up C would have to pay more. After the contract was signed the price of phosphate plunged and C was unable to resell at a competitive price. C ordered only a partial shipment, R agreed to lower the price for 3 shipments, C offered to take the phosphate at market price but R refused. R had to sell elsewhere at a cost below the contract price. R sued. C claims that the price in the contract was meant to be able to be adjusted up or down by the market. 2. In UCC, terms may not be contradicted, but may be supplemented by evidence of course of dealing, course of performance, or trade usage (even if the agreement was integrated). 3. Trade Usage – industry standards 4. Course of dealing – 1205, sequence of previous dealings between these parties. 5. Course of performance – 2208, relationship that has developed between parties since the formation of the contract. d. CISG and the Parol Evidence Rule i. MCC-Marble Ceramic Center v. Ceramica 1. Agreement over ceramic tiles, P claiming breach due to D failure to deliver. D claiming that P did not pay and P claimed that the goods were defective. Typed boilerplate supported the D, but P states that both parties had agreed not to be bound by those terms 2. CISG – there is no express statement about parol evidence. 3. Focuses not only on letting evidence in but also considering the weight that it should have. They might admit the evidence but give it less weight. 4. Article 8, both a statement about the manifestation of intent and a component that deals with the parol evidence rule. It is saying that all the boilerplate that they signed, they didn’t agree to it. Simply ask yourself if this additional circumstance should be considered to establish what the parties really wanted. a. 8(1) looks to the subjective intent of the parties using affidavits etc. b. 8(2) if 8(1) doesn’t apply, or is not reliable, look to the objective manifestation of intent. c. 8(3) to understand the intent, give due consideration to all of the relevant circumstances, including negotiations. IV. 5. Under CISG parol evidence is ok, but parties can contract around it with a merger clause or stating that Art. 8 will not apply e. Exceptions to the Parol Evidence Rule i. Davenport v. Beck – Mistake in the Writing 1. P contracted with D for purchase of land. There was a mistake on the promissory note which stated that the P would only make 135 payments as opposed to the 226 that it would take to pay the loan off. Promissory note is a detailed loan agreement. 2. Mutual Mistake – Where by reason of a scrivener’s mistake an instrument omits or contains terms or stipulations contrary to the common intention of the parties – A court of equity will consider it a mutual mistake common to both parties – that is, the scrivener left out or included provisions neither party intended – and therefore correct the error in a manner that will place the parties in the position they would have occupied had the error not occurred. 3. Standard for showing this: Clear and convincing evidence. 4. Mutual mistake and fraud (test on page 465) are both exception to the parol evidence rule that can be brought in. f. Condition Precedent, Fraud and the Parol Evidence Rule i. Smith v. Rosenthal Toyota, Inc. 1. Guy was conned into signing papers to his car over to dealership to get a new truck. Dealer had told the guy that nothing would be final until his wife okayed it 2. Restatement 217 – Where the parties to a written agreement agree orally that performance of the agreement is subject to the occurrence of a stated condition, the agreement is not integrated with respect to the oral condition. 3. A merger clause does not preclude the admissibility of evidence of a condition precedent. ii. Fraud – can use parol evidence to show the contract is not operative because of fraud. A fraud occurs when: false representation, known to the speaker or made with reckless indifference, made for the purpose of defrauding, reliance, and injury. A knowingly false statement, knowingly made for the purpose of defrauding the other party, which is relied upon to the injury of the other party can nullify the contract. iii. Three exceptions to the Parol Evidence Rule: 1. Mutual Mistake 2. Condition Precedent 3. Fraud Subsequent Modifications – UCC Section 2209. a. Zemco Manufacturing v. Navistar International Transportation Corp. (2209(3)) V. i. Z manufactured and supplied parts to N. In 1983 they entered into a sales contract that was renewable on a yearly basis. There had not been a written contract extension since 1987, the parties orally agreed to extend the contract. In 1995 one of the owners of Z left and formed PMI which started supplying N. N claimed that the oral contract extensions violate the statute of frauds. Z claims that simple time extensions or renewals of the contract need not be in writing because they are merely a modification of a non-definite contract term. ii. If the post-modification contract fits within the terms of 2201 then any modification of it must be in writing iii. UCC 2209(3) only applies to 2201 modifications. iv. Rule: Any agreement as modified, if it falls under the statute of frauds, has to be in writing. Contract that was originally for $300 and changed to $600 must be in writing. If it starts at 600 and goes to 300 does not have to be in writing. v. 2209 4 and 5 – you can have an oral waiver of that requirement, and provided that there is reliance on that oral waiver, it need not be in writing. Steps to Analyze the Application of the Parol Evidence Rule a. Restatement i. Is the writing a final and complete integration of the agreement 1. Use the Appropriate test a. Natural Inclusion Test – look at the circumstances to determine if the term was one which would naturally be included b. Appearance Test (if merger clause) 2. If Yes, then no parol evidence allowed 3. If No, then ask if the parol evidence is consistent. a. If no, then the parol evidence is not allowed b. If yes, then parol evidence is admitted to allow the finder of fact to decide if the parties had agreed to the additional term. b. UCC i. Does the parol evidence contradict? 1. If yes, then no parol evidence admitted. 2. If no, does the parol evidence constitute a course of dealing, course of performance, or trade usage? a. If yes, then allow the parol evidence to explain or supplement the agreement. b. If no – is the agreement integrated? i. Use the Certain Inclusion test – if the term was one which certainly would be included (higher bar than natural inclusion test, harder to get to an integrated agreement) c. If yes, no parol evidence is admitted 3. If No, admit consistent additional terms to explain or supplement.